The Omicron variant hits hopes that the global economy will enter 2022 at a more steady pace, potentially undermining policymakers’ plans to focus on inflation rather than weak demand.
The imposition of travel restrictions will shake the confidence of consumers and companies, possibly restricting activity in some places, just as the holiday season begins in many economies. Markets moved quickly to assess the financial blow.
Expectations for interest rate hikes next year fell by at least 10 basis points on Friday for the US, UK and Australian central banks. What follows will be dictated by what scientists will discover about the new variant of covid-19, including how resistant the virus is to vaccines and how much more contagious it is than the Delta variant that has been raging in recent months without restoring economies. in recession.
The worst-case scenario would be for the mutation to require a return to growth-paralyzing lockdowns, which would threaten supply chains already within their limits, and hurt demand recovery. This will rekindle fears of a stagnant inflationary mix of faster inflation and slower growth. Goldman Sachs Group Inc. economists They cited four probabilities, one of which includes a downturn scenario where a large wave of infection in the first quarter of next year sees global growth slowing to 2% on a quarterly basis -2.5 percentage points below their current forecasts. Growth in 2022 as a whole would be 4.2%, or 0.4 percentage points below forecasts.
GS Scenarios for the Impact of Omicron on Global Development
Negative scenario: The Omicron mutation is transmitted faster than its “predecessor”, namely the Delta, a development that will slow down the growth of the world economy by 2% on a quarterly basis in the first quarter of 2022, or roughly by 2.5% below Goldman Sachs current forecasts. For the whole of the new year, the world economy is expanding by 4.2% or 4.4% below the current forecast, while the prospects for inflation are “ambiguous”.
Very negative scenario: Both the severity of the disease with the Omicron mutation and the protection against hospitalization are significantly worse than the Delta variant. The growth of the world economy is therefore being hit hardest, while “the impact on inflation is again ambiguous”.
“Wrong alarm” scenario: The Omicron mutation is transmitted more slowly than in the Delta and has no significant impact on global growth and inflation, and
Positive scenario: The Omicron mutation is slightly more contagious, but causes much less severe disease. In this hypothetical “normalization” scenario, a net reduction in disease weight allows global growth to move higher than the Goldman Sachs baseline at possibly lower inflation as accelerated demand balances and product supply recovery accelerate and work.
Essentially the good outcome is that the mutation does not prove to be as threatening as we initially feared. But its appearance serves as a reminder that the pandemic will remain a threat to the global economy, possibly for years to come. “We are not stagnant yet,” said Alicia Garcia Herrero, Natixis SA’s chief Asia-Pacific economist. “But another year without cross-border mobility and related supply chain disruptions can push us there.”
Less impact
Even so, some economists say the impact may be smaller than seen during the 2020 recession.
The governments, although not of China, have shown caution in rushing back to the lockdowns. And the supply of vaccines partly explains why the data suggest that restrictions imposed in Europe have proven to be more flexible and less detrimental to growth. “Businesses and households have adapted to restrictions and lockdowns, so the blows may not be so severe this time around,” said Rob Subbaraman, head of global market research at Nomura Holdings Inc.
“This would mean a local lockdown as there are cases, stricter restrictions on regional travel and a greater chance of port closures,” he said. “China has proven capable of managing outbreaks, but the long-term economic costs will increase if the highly contagious strains are endemic worldwide.”
If the variant spreads, it could “slow down the healthy momentum in the US economy,” according to Mickey Levy, chief US and Asian economist at Berenberg Capital Markets. Markets calmed down in early Asian trading on Monday after a sharp sell-off on Friday as news of the variant arrived. The S&P 500, Nasdaq 100 and European contracts jumped, and oil rose again above $ 70 a barrel.
Business standard –Â businesstech.co.za
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